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The Long and Winding Road: Public Procurement after Brexit

The second reading of the Trade Bill took place on 9 January 2018. The Bill provides powers for the UK to join the Government Procurement Agreement ("GPA") in its own right since current membership is through the EU. The Bill follows on from the white paper "Preparing for our future UK trade policy" which signalled an intention to legislate in this way to preserve access to global markets worth £1.3 trillion annually in 47 states.

Previously the Local Government Association (LGA) had called for a simplified and more efficient public procurement regime after Brexit. They want it to be easier for local authorities to use local suppliers, require local living wages for contractors' staff and insist on training places for local people.

Here, our public procurement experts examine the scope for simplifying and relaxing the current public procurement regime after Brexit.

Background

Speaking on 9 January on the second reading debate on the Trade Bill the Secretary of State for International Trade said:

"we want to maintain UK businesses' guaranteed rights to access global public procurement markets worth approximately £1.3 trillion per year. The GPA, or government procurement agreement, is a plurilateral agreement within the framework of the WTO that aims to create an open market for Government procurement among participating nations. They include many of the world's major economies, such as the United States, Japan and Canada, as well as the EU states. Currently, we participate in the GPA through our membership of the EU. It is worth pointing out that the UK creates around £68 billion of procurement opportunities within the GPA annually-over 25% of the total EU offering. After we leave the EU, the UK will need to join the GPA as an independent member, not only to safeguard continuity of access for UK companies overseas, but to ensure that we can tap into international expertise and obtain the best deal for the taxpayer here in the UK."

Previously the LGA pointed out that almost no public contracts are awarded to companies in other EU member states. Only 20% of English councils receive expressions of interest from companies based in other EU countries. Across Europe, only 1.6% of public contracts are awarded to companies in other member states.

Will there be any scope for simplifying and relaxing the current public procurement regime after Brexit?

European Union (Withdrawal) Bill

The general objective of the Bill is to preserve the position of EU derived law as it exists immediately before exit day notwithstanding the UK withdrawal from the Treaties and the repeal of the European Communities Act 1972. This objective is achieved by:

preserving all the laws made in the UK to implement UK EU obligations (clause 2);

continue to make available the rights in the EU treaties that can be relied on directly in court by an individual (clause 4); and

providing that the case law of the European Court of Justice before exit day has the same status in UK courts as decisions of the Supreme Court (clause 6).

A notable exception is the removal of the right to damages for a failure to implement properly or at all an EU directive (so-called Francovich claims).

As a result of the Bill, the EU procurement regime, as it exists immediately before exit day, will remain in force. The principal procurement directives are:

the Public Contracts, Utilities and Concessions Directives;

the Defence and Security Contracts Directive;

the Remedies Directive; and

the Utilities Remedies Directive.

These Directives have been transposed into law in England and Wales by the Defence and Security Public Contracts Regulations 2011, the Public Contracts Regulations 2015, the Concession Contracts Regulations 2016 and the Utilities Contracts Regulations 2016.

The Bill enables Ministers by regulations for a period of two years beginning with exit day, to "make such provision as the minister considers appropriate to prevent, remedy or mitigate":

any failure of retained EU law to operate effectively; or

any other deficiency in retained EU law,

in either case, arising from the withdrawal of the UK from the EU.

An exhaustive list of "deficiencies" in EU law are set out in the Bill. They include where the Minister considers that retained EU law

"contains anything which has no practical application in relation to the United Kingdom or any part of it or is otherwise redundant or substantially redundant";

"confers functions on, or in relation to, EU entities which no longer have functions in that respect under EU law in relation to the United Kingdom, or any part of it;

"contains EU references which are no longer appropriate"; and

more broadly arrangements "which no longer exist, or are no longer appropriate as a result of the United Kingdom ceasing to be a party to any of the EU Treaties"

These powers may not be used to impose or increase taxation, operate retrospectively, create a criminal offence, implement the withdrawal agreement, alter or repeal the Human Rights Act or, except in limited circumstances, the Northern Ireland Act 1998.

The overarching limitation of these scenarios to cases arising from the withdrawal of the UK from the EU means ministers are unlikely to be able to use them to address the policy objectives of the LGA. Ministers may be unable to do much more than deal with immediate issues consequential on withdrawal like the appropriate place for publishing contract and award notices (likely to remain Contracts Finder in place of the Official Journal, and definitions of standards which rely on European institutions to which UK contractors will no longer have access as of right.

A Transitional Agreement and the Withdrawal Agreement

Government policy as outlined in the Prime Minister's Florence speech, is to seek a period of transition before any new "deep and special" partnership agreement is negotiated between the UK and the remainder of the EU. The European Council agreed to enter negotiations for a transition period at its meeting in December and expectations are that such a period will last about two years.

There is uncertainty about how a transitional agreement might be implemented in domestic law. The most straightforward way of achieving a transition period is to extend the Article 50 period for withdrawal and defer exit day beyond 29 March 2019.There is now power in the Withdrawal Bill to do so, however the political difficulty of doing so seems to rule out this option.

Other options such as including a transition period in the withdrawal agreement will test the elasticity of the word "withdrawal" when the ambition of the transitional agreement is to achieve a situation as close as possible to the present but without UK membership of the EU. Is that really "withdrawal"? Moreover the Withdrawal Bill ends the jurisdiction of the Union Courts in the UK on exit day and repeals the European Communities Act thereby depriving the Government of the means for implementing new EU directives and regulations during this period.

As for public procurement law, a transitional agreement seems certain to postpone any scope for delivering the kind of change which the LGA has in mind for at least another two years.

The GPA

On the assumption that the UK will no longer be a member of the EU during the transition period it will need to apply for membership of the GPA in its own right. The Government appears to accept that the idea of the UK succeeding to the rights and obligations of the EU under the GPA as a matter of customary international law is not a secure basis for legal access to public procurement markets in other states after withdrawal, hence the provisions in the Trade Bill.

We think it likely that the UK will seek membership on the same basis and with the same coverage as its current membership through the EU. This approach limits the scope for negotiation and the period when UK business will only have de facto access to public procurement markets outside the EU. De jure access to the same markets within the EU will rely on the transitional agreement.

The Trade Bill will enable "the appropriate authority" to make regulations for implementing the GPA. The appropriate authority is a Minister of the Crown, a devolved authority or the two of them acting jointly, thereby recognising that public procurement is a devolved matter.

As it stands, the only means of amending the Public Procurement regulations in England and Wales after exit day will be:

through the limited powers in the Withdrawal Bill within the two year period after exit day, or

as part of the regulations for implementing the withdrawal agreement, if the withdrawal agreement requires changes to the public procurement regime, or

in order to implement the GPA

Since the regulations are consistent with the GPA (as a consequence of the UK's current membership of the GPA), it is not easy to see what further implementing regulations are required. The GPA is less extensive than the Directives and EU law in a number of areas, for example in utilities and defence. In addition, the GPA does not cover below-threshold procurements, service concessions, and so-called part B services as defined in the pre-2014 Directives. As a result, there is no "light touch" regime. Competitive dialogue and competitive negotiation are unknown. There are no specific provisions about contract "modifications". Remedies are weaker since there is no standstill provision, no automatic suspension of the award after a challenge and no remedy of ineffectiveness. Damages may be limited to the cost of bidding and the costs of bringing proceedings.

It follows that even if the withdrawal agreement says no more about public procurement than is consistent with the GPA obligations, there looks to be little room for simplifying the regime on the basis of Government policy and legislative proposals to date.

Perhaps some of the LGA's ambitions around the use of local suppliers and a local living wage have a better chance of bearing fruit with the prospect of an end to the general right to freedom of movement under the TFEU after exit day, or the end of the transitional period depending on the outcome of the next stage of the negotiations.

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